Thursday, March 06, 2008 Editorial: Taxed by poor judgment
WITH the advent of devolution, local government units (LGUs) have become corporate entities. LGUs craft their own budget, are given power to levy taxes and create revenue-generating enterprises.
This creates a business-like competition among LGUs, who must vigorously vie for local and foreign investors in their turfs to boost income-the size of which determines how well the constituents are served.
And as the competition gets stiffer, giving out tax incentive schemes has become the norm to lure prospective investors.
It is in this light that the Cagayan de Oro government endorsed last year the conversion of Del Monte Philippines into a special economic zone.
But by their own language-as put forth in the official rationale contained in the endorsement resolution-the members of the
14th City Council apparently erred in thinking that the city would benefit from making the Bugo cannery an ecozone.
Consider this excerpt from City Council Resolution No. 8579-2007, adopted in May 2007: "...this Body believes the approval of said application is beneficial to the city of Cagayan de Oro considering that RA 7916, also known as the Special Economic Zone Act of 1995, as amended, provides that two percent of the taxes paid by zone enterprises shall be directly remitted by the business establishments to the treasurer's office of the municipality or city where the enterprise is located, which is a more secured source of revenue compared to the internal revenue allocation system provided under the General Appropriations Act that is subject to availability of funds."
Quite simple reasoning but miserably flawed, and even laughable-that is, if the P54 million in taxes lost from that wisdom is no laughing matter.
A number of councilors who approved the resolution later expressed disbelief upon learning that the two percent tax incentive as something that is part of the IRA. Of course, the incentive is pitted against the business and real property taxes being imposed by LGUs.
One wonder, therefore, what the councilors in the present City Council were thinking when they endorsed four other ecozone applications since last year.
Adding to this mess, it was learned that the City Council did not consult anybody in the City Finance Department in all of these endorsements-even if the lesson learned in the Del Monte experience is still visible in the thinning coffers of the city.
It is an established convention that when a lawmaker is unable to make heads or tails out of something, he or she can either sit with the experts, or abstain.
That the councilors acted haphazardly on these endorsements without a comprehensive study on its adverse effects to the revenue-generation structure of the city is highly suspect.
